The Asia-Pacific region is home to the highest number of millionaires in the world, with an estimated 2.6 million high networth individuals holding assets worth $10.6 trillion.

But assets under management by bank wealth services in the region flattened in 2011, accord¬ing to a Private Banker survey released in October 2012, dropping to $1.099 trillion from $1.105 trillion. This shrank a pool of funds being fought over by discreet Swiss advis¬ers and heavyweight U.S. and European banks as well as regional banks such as Singapore’s DBS and Hong Kong’s Hang Seng Bank.

A key reason for the drop was that the wealthiest wanted more than just asset allocation and a tick box of plans, offshore law firms say. There are legacy considerations, including charitable foundations, and a personal view of families and business that takes time to get coaxed out of clients considering how inter-generational wealth should be transferred.

Private trusts are a key way to get those results, offshore firms interviewed by Asian Legal Business said, describing a variety of available tools that are being tapped by the growing number of wealthy in Asia, from cash-rich market investors, family-owned businesses that want to redeploy tied up capital to inherited and real estate derived fortunes that need to be adjusted with the changing times.

“We are seeing more second-generation wealth interest, especially from South Asia and Indonesia, as family and company situations have changed greatly with expansion into several countries, and the original inheritance structures were outdated,” says Lee Syin Long, Singapore-based Head of Trusts (Asia) at Walkers Global.

“Coming from emerging economies, clients are looking to secure their assets against the threats of political and social uncertainty and to provide for their dependents,” Lee says. “Depending on the family situation, South Asian clients with larger, complex families tend to have very specific business succession concerns, which require the coupling of complementary succession planning solutions, such as key man insurance and a family charter, to be used in tandem with a trust.  That being said, we are also seeing younger clients from China with higher risk appetites looking to exit their businesses, and the work for these clients tends to originate from the pre-IPO space.”

Walkers has offices in the British Virgin Islands, the Cayman Islands, Dubai, Dublin, Hong Kong, Jersey, London and Singapore, with Lee advising families and corporates on private and commercial trust matters as part of their overall estate planning and business succession needs.

Lee also works with Thomas Granger, a Singapore-based partner in the firm’s Investment Funds Group, which acts for investment managers, advisers and trustees in connection with all aspects of the establishment, registration, and the ongoing operation of investment funds.

“We are experienced in establishing different vehicles, including master-feeder corporate or partnership structures, managed account platforms, multiseries unit trusts and umbrella funds,” Granger says.

Several law firms with large, established practices elsewhere in the world have recently expanded or opened offices in Singapore, straying from Hong Kong bases in some cases or preparing for a wave of competition in the private trust segment, as Asian markets are seen by many industries, and not just law firms, as a way to offset stagnant growth prospects in traditional markets.

Not only taxes

Though tax issues may be a reason for seeking advice on forming a private trust for many Asian families, the process should instead force them to think long and hard about what they want to accomplish, and many times that can even surprise the client on the true goal.

“A well-advised client may have some useful consequences arising from the key reason for establishing a trust. What may come as a surprise is that tax is not often the key driver to establish these structures, although there are often tax consequences,” says Paul Christopher, managing partner of Mourant Ozannes’ Hong Kong office. “Our experience in Asia is that there is insufficient independent advice being sought by all parties on these matters, and whilst that may seem like a cost saving at the start of a relationship, it can be an extremely expensive oversight if the situation becomes more contentious.”

Mourant Ozannes has 50 partners and 440 staff in five offices spanning Asian, American and European time zones that are advising on the laws of the British Virgin Islands, Cayman Islands, Guernsey and Jersey, with Christopher specialising in corporate, banking and finance work and acting for a number of leading trust institutions.

The particular nature of the Asian market, Christopher says, varies, but there is a threshold and type of wealth, which he declined to quantify, that should prompt serious consideration of a private trust.

“Certain types of structures will only be cost efficient once over a certain value of assets is involved,” Christopher says. “Families with assets owned and located in different countries, or whose members are resident in different countries or subject to a variety of different tax and inheritance regimes, or those families who are highly mobile (and all of these traits are regularly found in Asian families) should, as a matter of course, be alert to the need to plan their wealth structuring.”

The structure of a trust takes a team approach across fields such as financial advisers and onshore legal firms that usually have a long-standing relationship with the client, and while one size does not fit all, there are some common themes, says Richard Grasby, a Hong Kong-based associate with Maples and Calder who works with institutional trustees and private individuals on all areas of trust law and related private client issues.

“A typical structure can be divided up into several levels. The structure will look at the actual ownership of assets, the control of those assets, and the enjoyment of the assets. Each branch of a family and/or each family may have their own structure,” Grasby says.

“The fund may be structured so that different parts of the family benefit from different investments. The management of the fund would usually set out how the management would be achieved in the future in the event of a change of circumstance.”

Maples and Calder advises on the laws of the Cayman Islands, Ireland and British Virgin Islands, with the specialist Asia-Pacific team based in Hong Kong and Singapore, offering services in Cantonese, Mandarin, Bahasa-Malay and Japanese as well as  specialised funds.

Client wealth derives from a wide range of sources including construction, telecom, mining, banking and finance, hotels, confectionery, energy, food production and distribution, oil and gas, private equity, real estate, aviation and inheritance, with the total value of the wealth of those families with offices exceeding $129 billion.

Offshore vehicles can bring advantages in structure as well as costs for legal, regulatory and other administrative expenses increasingly becoming a concern in Asia as families spread across jurisdictions.

“We are seeing a large increase in interest in our Asian offices - particularly Singapore - as families wish to run their operations from well-regulated, low tax jurisdictions,” Grasby says.

Singapore, which boasts the highest percentage of millionaires in the world at one for every six house¬holds, is also home to DBS, the top-ranked Asian-headquartered private bank with $39 billion in assets under management, placing it in the top 10 for wealth management in Asia.

“Hong Kong and Singapore are more mature markets for formal structuring for locally-based families, but there are many sophisticated structures with origins in Indonesia and Taiwan for example. China is still developing, but with many wealthy individuals and their families planning to or in the process of emigrating, the formal structuring will increase.”

Trusts are designed as equitable obligations under a trustee to be administered for the benefit of a family or company, with the offshore variety formed under the laws of an offshore jurisdiction that normally affords confidentiality and a low fee and tax structure, though, because of complex family dynamics, need to be flexible and detailed at the same time, Grasby says.

“Asian wealth is very linked to family-owned businesses and the family needs to be in control,” Grasby said.

“For families where the adult children have been educated or worked in the West, there has been an increased exposure to formalised structures. There is also awareness of the increase in family litigation and how proper structures - with as many parties as possible buying in - can reduce this.”

Offshore firms rely on onshore or multinational law firms to get business, especially for corporate transactions, though for private trusts, the connections may be wider and present a greater opportunity to make connections.

Flexibility is key

Flexibility has become a buzzword for offshore firms. “The first place to start is that every client is different,” says Marcus Leese, a Hong Kong-based partner at Ogier Private Wealth (OPW), which offers bespoke offshore trusts, foundations and other asset holdings under the laws of the British Virgin Islands, Guernsey, Jersey and others. “But it is fair to say there are some principal categories for most. The first is succession planning that allows the orderly transfer of assets from one generation to another.”

OPW has more than 30 lawyers and 50 professional administrators with 10 partners to help administer assets across the globe in companies, unit trusts, and partnerships including individuals and families looking to create platforms for charitable or philanthropic giving with Leese specialising in investment funds, structured finance, banking, corporate and commercial work, private wealth and trusts.

Leese said the other common threads are good governance, tax planning, and confidentiality.

“These all entail very distinct areas of specialisation that need to be brought together and not be seen in competition,” he says, citing an example of a recent case involving U.S. tax advisers, British Virgin Islands attorneys, private wealth advisers, trustees and long-time advisers to a family, along with the inclusion of local counsel.

“In some cases, we can coordinate those activities, or just advise. But the goal is to work together to give the client the best solution,” Leese says. “The point is that none of these issues gets overlooked, and that can mean working with entities that have the longest and deepest relationship with the client while offering outside advice.”

He adds that private trusts offer the ability to adapt, and solidly designed ones that can last up to 30 or 40 years, but there is nothing “off-the-shelf” about putting one together.

“For a client in Singapore, it took two years as he thought very carefully about what he wanted to achieve and the process took us through many ideas. That is what we mean by flexibility, says Leese. He Adds that for charitable or other social goals, the firm has established guidelines and relationships with key regulators, and these trusts also need to be able to change with circumstances.

Asset protection has also been a driver for the private trust business focusing on more conventional assets, says Henry Mander, a British Virgin Islands and Cayman trust practitioner at Harneys, the oldest and largest law firm in the British Virgin Islands.

Mander works with the Harneys Hong Kong team advising Asian clients on offshore trusts which includes partners Colin Riegels, Timothy Bridges, and Lisa Pearce.

“Clients' motivations in setting up trust structures vary from one to the next. But succession planning, asset protection and anonymity are the biggest drivers in Asia in our experience,” says Mander, adding that like other firms in the British Virgin Islands, the offers include discretionary trusts, charitable trusts, Vista trusts (British Virgin Islands Special Trusts Act) and non-charitable purpose trusts.

“We very commonly deal with families where the patriarch, who founded a family business, is coming towards the end of his time and is looking for a suitable vehicle to hand down the business to his children while keeping in place certain safeguards, such as the involvement of a third party trustee. Pre-IPO planning is also popular, as is prenuptial trust planning,” Mander says.

At offshore firm Appleby, the trust business is seeing steady demand for succession planning, a service it seeks to enhance by offering a full range of trust management options.

“In addition to legal advice in structuring and establishing the trusts and foundations, Appleby is also able to furnish trust administration, corporate administration, and other fiduciary services to clients,” says Tan Li-Lee, a Hong Kong-based counsel with the firm, adding that Appleby opened a representative office in Shanghai in April 2012 for Chinese clients seeking a seamless fiduciary offering, including an incorporation service for British Virgin Islands, Seychelles and Mauritius companies.

Out of the box

Other ideas on trust investments also make a mark such as collections of antiques, musical instruments, wine and heirlooms and green technologies as families spread out across the globe, something attorneys for Conyers, Dill and Pearman have seen of late.

This is especially true with the flood of money unleashed by the U.S. Federal Reserve’s third round of debt asset securities in the United States, known as quantitative, that makes finding investments difficult as long as easy liquidity lasts.

“Where a private trust company is established as (a) trustee of a family trust and family members comprise the board, investment decisions will reflect the family’s judgment as to the appropriate level of risk and they may feel less constrained than a professional trustee might in that regard,” says Raymond Davern, an associate with the firm in the British Virgin Islands, with Hong Kong-based partner Piers Alexander saying that “recently, we are seeing an increasing interest from clients in green funds and energy funds.”

Cayman Islands-based entities are recognised by the United States and the European Union for listing on bourses and facilitating cross border deals, according to several firms, thus helping attorneys design private trusts that, in many cases, can retain a local flavour.

Conyers advises on the laws of Bermuda, the British Virgin Islands, Cayman Islands and Mauritius, offering a full range of family, commercial and philanthropic trusts in each of these jurisdictions, with the exception of Mauritius.

The Hong Kong office investment funds practice has a pan-Asian focus, working with clients from across Hong Kong, China, Japan, Taiwan and Vietnam, and non-Asia based fund management groups seeking to invest in Asia with services available in Japanese, Cantonese and Mandarin among others.

Stephen Adams, a partner at Bedell Cristin in Singapore, says that private trusts are increasingly asked to look at investments from securities and bonds to more bespoke investments such as wines and even in one instance, rare musical instruments.

The firm offers full legal services in relation to trusts including advice on trust formation and administration in addition to litigation, with demand on the rise, particularly in the higher growth economies such as Hong Kong and Singapore.

“In our experience, an increasingly younger and more entrepreneurial demographic is using trusts and funds as a means to invest, and are seeking higher returns,” Adams says. “Previously, private trusts were seen, in the main, to be capital preservers often used to protect against inflation, inheritance taxes or deal with succession. Nowadays, in the Asian market, they are often being used to grow and manage capital.”

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